Business Opportunities Weblog

April 7, 2009 by Dane Carlson | 2 Comments

When it comes to franchises, Joel Libava is one of the brightest guys I know. He’s the president of the Cleveland, Ohio-based franchise consulting firm Franchise Selection Specialists. He blogs daily at The Franchise King and is an active Twitter’er.

Here’s a snippet of an interview SmallBizResource just published with him:

SBR: How much does it cost to start a franchise?
JL: I tell people they should have a minimum of a $200,000 net worth. They should be able to write a check for $40,000 or $50,000 of their own money, and they should have the ability to go to a lender for the rest.

SBR: These days, that’s easier said than done.
JL: I’m hearing mixed things about getting loans now. What the lenders are telling me is that great credit and collateral are the answers, but you need to have both. It can’t be any kind of franchise that’s too weird or has just started. It doesn’t have to be a brand name, but it has to be something that makes sense. The average total investment of the people I’ve helped has been around $170,000 — that’s everything from inventory to working capital and franchise fees.

SBR: What other costs are involved?
JL: There’s an up-front franchise fee, anywhere from $20,000 on up but average about $35,000. That’s the license fee — here, you just purchased the system. Then there are royalties, which are a percentage of your gross sales — anywhere from 4 percent to 12 percent of gross sales per month. That’s where the franchisor creates wealth. You’re talking maybe $20,000 or $30,000 a year. But I tell people bluntly, it’s not your idea, so pay. If you want to invest $300,000, take the risk and start your own franchise. Then you get to charge royalties.

Be sure to read the rest.

In Franchising | 2 Comments